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justtall
July 2, 2023
Question

Oops. Wrong VAT code used the last 18 months!

  • July 2, 2023
  • 1 reply
  • 0 views

Hello!

 

We are a UK VAT registered e-commerce store with 3PL warehouses in the UK and USA. We have correctly been using 20% S for UK sales, and 0% Z for EU sales (exported from the UK).

 

BUT - we have also been using 0% Z for USA and Canada sales based from our USA 3PL warehouse. That's what an accountant told us to do. Until we read the following just now on the HMRC website:

 

2.2 Place of supply

Goods are normally treated as being supplied where they are located at the time of supply and not where the supplier is located.

Goods located:

  • outside the UK are not exports and the supply is outside the scope of UK VAT

 

So we now switched all USA and Canada sales from 0% Z to NO VAT, as we ship from the USA, not the UK.

 

Thankfully that didn't result in us overpaying or underpaying VAT, but we're concerned about the future large drop in zero rated transactions due to attributing all our USA sales as 'zero rated' the last 18 months.

 

Thoughts anyone?

1 reply

paul72
paul72
July 3, 2023

Hi @justtall 

 

Technically, transactions that complete entirely outside the UK are Outside the Scope of VAT.

Outside the scope of VAT means you do not charge VAT on the sales & you do not include the sales figures in your VAT returns.  This is what NoVAT code does ... nothing at all is entered on the VAT Return.

The problem with using NoVAT code is you have to be careful comparing sales/turnover figures to those on the VAT Returns - they will no longer tally, so you can't use them as a double check.

 

In practical terms, though, the difference between Zero Rating for Export (Z=0% or Exempt) & Outside the Scope is statistical - in addition to keeping track of your VAT, the box 6&7 figures are used for various Whitehall bean-counting.

The important thing is that you've declared & paid the correct amount of VAT (which was £nil on all these transactions).  Changing the way you enter these in QBO shouldn't cause a real issue with HMRC.

 

Whether you enter on the VAT Return or not, make sure you have solid records showing the goods being bought & sold entirely outside the UK.

For the goods that are exported from the UK & zero-rated, you need to have & keep proofs of export.

 

Hope this helps.

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